Minimum booze prices miss benefits: Raising a glass can increase your pay
THE Scottish government has confirmed that it will set a minimum price for alcohol of 50p per unit, while a 40p price is planned for England and Wales for later in the year. The basic idea is that consuming beer, wine and spirits is bad, and that basic economics can help deter it. If a legally imposed minimum price is set above the current market rate then this should reduce the quantity of alcohol demanded. There’s two points to make here.
The first is that this logic is true for any market. For example, if you set a minimum price on labour you should expect the demand for labour to fall. Indeed this is the primary explanation for why minimum wages are counter-productive and thus economically illiterate. It would be nice if policy makers could see this contradiction.
The second point is to challenge whether drinking is bad. Most people accept the health and social costs of excessive drinking, but just because an activity has costs does not mean it should be discouraged. Skiing is a highly costly hobby, but that doesn’t make it wrong. Like skiing, some people (not all) find alcohol consumption to be enjoyable. Not all drunks are lairy and intolerable – drink is a great social lubricant that turns strangers into friends and is where adventures begin.
The temperance lobby often defends its illiberalism by suggesting that the use and abuse of alcohol is not only a matter of weighing private costs and benefits, but also gives rise to externalities. It claims that individual choices have a negative impact on others, and this provides scope for government intervention. But imagine a situation where someone drinks so much that he or she requires a liver transplant. Does the fact that the NHS pays for your operation mean you are not bothered about having one? And isn’t the root problem that the NHS separates actions from costs, and thus acts as a subsidy for unhealthy behaviour?
But what is almost always missing from the debate is that drinking provides positive externalities as well. People that drink tend to do so socially, and this builds social capital. There is evidence to suggest that some of these benefits are actually manifested in higher wages for drinkers. Economists Bethany Peters and Edward Stringham found that drinkers earn 10-14 per cent more than non-drinkers. The chart (right) shows the difference in American mean earnings depending on whether people “ever have occasion to use any alcoholic beverages”, or whether they abstain.
Anthony J. Evans is associate professor of economics at London’s ESCP Europe Business School. www.anthonyjevans.com [email protected].